The gold price has rocketed in 2022 with investors seemingly moving their money out of stocks and shares and into the precious metal.
So, with the ongoing Ukraine crisis, will gold continue its upward trajectory over the coming weeks? And what could be set to send the gold price soaring even further this week? Let’s take a look.
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How has gold price performed recently?
Despite a poor 2021, the gold price has soared in 2022. At the turn of the year, gold stood at $1,829 (£1,392) per troy ounce. By 14 February it had risen to an impressive $1,856, before surging at the tail-end of the month.
As of midday on 7 March, one troy ounce of gold now costs $1,986 (£1,512). That’s a rise of 8.5% since the beginning of the year, which is impressive. In the same period the FTSE 100 is down 7.55%, while the FTSE 250 is down by a massive 20.7%.
Why has gold performed well in 2022?
Gold, as well as other precious metals and finite commodities, typically do well during periods of high inflation and economic uncertainty. That’s because such factors often have the potential to devalue currency, which can encourage investors to pile their wealth into gold.
So while gold rarely delivers enormous returns, it’s seen as a safe way of protecting wealth. In other words, many believe it will always be highly valued given that it is expensive to find and difficult to mine.
Right now, the global economic environment is very uncertain due to the ongoing war in Ukraine. This is partly the reason behind its recent surge in price.
Will the gold price continue to soar?
We know that the majority of countries around the world have imposed sanctions on Russia following its decision to invade Ukraine. However, while global economic sanctions will harm the Russian economy, they will also have a knock-on impact on other countries, including those imposing the sanctions.
That’s because sanctions will undoubtedly lead to higher prices for everyday goods, including wheat and oil, which the West imports in vast quantities from Russia. This all comes at a time when the cost of living crisis is already biting in the UK right now.
Before the war started, we already knew that UK consumers will face higher energy prices from April. Meanwhile, the planned 1.25% increase in National Insurance will go ahead during the same month, adding hundreds of pounds to the average worker’s tax bill.
This all has the potential to add further pressure to the UK’s growing inflation rate, which currently sits at 5.5%. This is well above the UK government’s annual 2% target.
As a result, investors are likely to become increasingly concerned, which means that the gold price is likely to continue heading upwards.
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What one thing could send the gold price soaring this week?
While inflation is bad in the UK right now, things are officially worse in the United States. According to the latest American Consumer Price Index, inflation has climbed to 7.5%. While the UK won’t release its inflation figures for another two weeks, the US Bureau of Labor Statistics will reveal its latest inflation figures on Thursday 10 March.
Should the US agency reveal a figure above 7.5%, then pressure will be piled on the US Federal Reserve to increase interest rates. Investors are unlikely to welcome this given that any such move will make it more expensive for businesses to borrow. This can stifle growth and negatively impact share prices.
In other words, if inflation in the US is revealed to be growing on Thursday, then expectations of an interest rate rise will also grow, which will undoubtedly see some investors turn to gold. This has the potential to send the gold price soaring.
While the US doesn’t directly control the gold price, of course, the sentiment of American investors often has a huge impact on the wider global economy. Interestingly, the US holds 8,000 metric tons of gold, which is officially the largest reserve in the world.
How can you invest in gold?
If you want to invest in gold, you can buy the physical commodity through a bullion company.
Alternatively, you can buy a gold exchange-traded commodity (ETC). You won’t own physical gold if you choose this route. Instead, your investment will track the price of gold.
You can invest in a gold ETC through a normal share dealing account. A Gold ETC can also be held within a stocks and shares ISA.
